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India aims to become the world's back-office

M D Riti in Bangalore

Most people in the software industry, the world over would like to put 2001 -- a year of slowdown, pink-slips and cost cuts -- behind them and move ahead with the hope that 2002 sees an upturn.

So to what extent is the software exports target of $3.5 billion by 2003 achievable? To most people outside the IT industry, and many inside it, this might seem like a ridiculously optimistic estimate.

The industry has devised concrete strategies, which they hope will help them to reinvent themselves and combat the slowdown.

The solution is but simple -- either go higher or lower on the value chain than the point at which you are now.

Everyone, including the IT majors like Wipro and Satyam, talk continuously about going higher, which is for obvious reasons a more stable way to achieve self-dependence. But in reality, most firms are finding it simpler to provide the most basic of services at lower costs.

"During the current fiscal, we are targeting software exports of $2.34 billion, while for the next fiscal 2002-03, it would be $3.5 billion," said B V Naidu, director, Software Technology Park, Bangalore. He said out of 18 STPIs in the country, the Bangalore STP contributed the maximum percentage of revenue at 45 per cent last fiscal.

"We are trying to increase the contribution to over 60 per cent over the next two fiscals," Naidu added. STPIs across the country posted a 73 per cent rise in software exports last fiscal out of the total $6.2-billion revenue. "We feel the growth would continue." said S N Jindal, director of all the STPIs in the country.

STPI sources put the growth rate at 40-50 per cent for this year. "Our target is to achieve $50-billion software export revenue by 2008," said Jindal.

Ultimately, this implies that India is heading towards becoming a major back office for the whole world. "I'm sure that the process will be speeded up as an effect of the general slowdown," says Aditi Technologies.

"Since cost-cutting has been part and parcel of every budget plan, there has been a fundamental change in mindset that is forcing companies to ensure that every strategic decision is carefully weighed. When you look at it that way, an offshore proposition becomes very compelling - it certainly has cost advantages without any serious compromises in terms of control or quality."

"Earlier many mid-sized companies didn't consider offshore outsourcing because they were uncertain about what was involved. And there was no burning need for them to spend time in exploring the possibilities. Today, the same companies realise that they cannot ignore these possibilities anymore. They are spending time in exploring how best they can leverage the India advantage."

Offshore back-office operations now encompass not only routing clerical tasks but also highly skilled professional activities, points out K Sareen, executive director, Electronics and Computer Software Export Promotion Council.

"As globalisation and contracting out increase, India has new opportunities to provide a range of back office services to private and public enterprises as well as non-governmental sector," he says. "All this means serious business for India."

The advances in technology in the last five years have made it possible to locate several functions, even many critical backend processes. Through remote backoffice processing, these companies can not only achieve significant improvements in cost, quality and time but also create platforms for building new businesses. More affordable skilled labour-surplus economies like India are beckoning them.

Ireland was a hot destination for locating such work in the past decade. But Ireland has its limitations. While the cost advantage to a US company shifting work to Ireland is no more than 20 to 30 per cent, the same works to over 50 per cent with most Asian countries, particularly India.

In fact, even some Ireland and Singapore-based companies have now begun to back-end their operations in India, since skilled labour is becoming an increasingly scarce resource in these countries.

Yet another compelling factor in India's favour is that the companies can capitalise on its unique time zone position. India offers a virtual 12-hour time zone difference with USA and six to seven hours with most European markets.

While bookkeeping, billing, in and outgoing payments/ reminders, feeding in information, e-mail and/or on-line-support for the company's customers, are some of the more common back-office functions, Indian companies are also adept at interaction services, insurance claim processing, medical transcription to providing payroll and HR services, with the industry estimating to gross worth Rs 41 billion this year from IT-enabled services as against Rs 24 billion in 1999-2000.

In fact, India's exports of IT-enabled services to North America is expected to grow over 15 times in the next five years, says a report by US-based Stevens International.

Now, with the European economy growing steadily in size, it is slowly becoming a lucrative market for India. After the United States, the European Union has the most active market for back office operations - primarily call centres, which are growing at the rate of 40 per cent per year. It is estimated that there are more than 200,000 call centre agents in the UK alone, which is two-thirds of the total for Europe, says a report by ESC, an autonomous body under the ministry of information technology.

Because of the growing size of the EU economy, a number of small EU communities are actively soliciting back office business to create jobs. In most cases, the back office could then be sub-contracted to overseas partners in India.

However, India now faces serious competition in this area from countries like Mexico, Philippines and Malaysia, which have also emerged as remote processing hubs.

As per industry estimates, there are more than 1,00,000 call centers worldwide. The number is expected to grow to 300,000 by 2002, employing approximately 18 million people. By 2003, $60 billion is expected to be spent on remote processing: call centres, back-office operations, data conversion and financial accounting operations.

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